Sorry folks, this is what a recession looks like in China since the
big guys are unable to go broke. Maybe they need to send everyone
back to the farm for six months to provide a super boost there in
human effort.
This means we face an economic pause here while demand has a chance
to pick up and clean up inventories. In the mean time the US economy
is staggering back onto its feet but remains slow going. The Euro
zone remains trapped in a caccoon of poor investor confidence that is
still far from been resolved. All these economies would respond
extremely well to anything that assists in recapitalizing the base
itself.
Perhaps this time instead of the usual stupidity, we could provide
stimulus money by simply correcting the mortgage rules and matching
down payment money for new house sales. If that were done
universally, the capital formation would be rapid everywhere and
demand would soar. The funds could be secured a claim paid out on
resale at double original face value.
China Confronts
Mounting Piles of Unsold Goods
Forbes Conrad for The
New York Times
Bags of toys stored at
a shop in a wholesale market in Guangzhou, a city in southeast China.
By KEITH BRADSHER
Published: August 23,
2012
GUANGZHOU, China —
After three decades of torrid growth, China is encountering an
unfamiliar problem with its newly struggling economy: a huge buildup
of unsold goods that is cluttering shop floors, clogging car
dealerships and filling factory warehouses.
The glut of everything
from steel and household appliances to cars and apartments is
hampering China’s efforts to emerge from a sharp economic slowdown.
It has also produced a series of price wars and has led manufacturers
to redouble efforts to export what they cannot sell at home.
The severity of
China’s inventory overhang has been carefully masked by the
blocking or adjusting of economic data by the Chinese government —
all part of an effort to prop up confidence in the economy among
business managers and investors.
4
But the main
nongovernment survey of manufacturers in China showed on Thursday
that inventories of finished goods rose much faster in August than in
any month since the survey began in April 2004. The previous record
for rising inventories, according to the HSBC/Markit survey, had been
set in June. May and July also showed increases.
“Across the
manufacturing industries we look at, people were expecting more sales
over the summer, and it just didn’t happen,” said Anne
Stevenson-Yang, the research director for J Capital Research, an
economic analysis firm in Hong Kong. With inventories extremely high
and factories now cutting production, she added, “Things are kind
of crawling to a halt.”
Problems in China give
some economists nightmares in which, in the worst case, the United
States and much of the world slip back into recession as
the Chinese economy sputters, the European currency zone collapses
and political gridlock paralyzes the United States.
China is the world’s
second-largest economy and has been the largest engine of economic
growth since the global financial crisis began in 2008. Economic
weakness means that China is likely to buy fewer goods and services
from abroad when the sovereign debt crisis in Europe is
already hurting demand, raising the prospect of a global glut of
goods and falling prices and weak production around the world.
Corporate hiring has
slowed, and jobs are becoming less plentiful. Chinese exports, a
mainstay of the economy for the last three decades, have almost
stopped growing. Imports have also stalled, particularly for raw
materials like iron ore for steel making, as industrialists have lost
confidence that they will be able to sell if they keep factories
running. Real estate prices have slid, although there have been hints
that they might have bottomed out in July, and money has been leaving
the country through legal and illegal channels.
Interviews with
business owners and managers across a wide range of Chinese
industries presented a picture of mounting stockpiles of unsold
goods.
Business owners who
manufacture or distribute products as varied as dehumidifiers,
plastic tubing for ventilation systems, solar panels, bedsheets and
steel beams for false ceilings said that sales had fallen over the
last year and showed little sign of recovering.
“Sales are down 50
percent from last year, and inventory is piled high,” said To
Liangjian, the owner of a wholesale company distributing picture
frames and cups, as he paused while playing online poker in his
deserted storefront here in southeastern China.
Wu Weiqing, the
manager of a faucet and sink wholesaler, said that his sales dropped
30 percent in the last year and he has piled up extra merchandise.
Yet the factory supplying him is still cranking out shiny kitchen
fixtures at a fast pace.
“My supplier’s
inventory is huge because he cannot cut production — he doesn’t
want to miss out on sales when the demand comes back,” he said.
Part of the issue is
that the Chinese government’s leaders have decided to put
quality-of-life concerns ahead of maximizing economic growth when it
comes to two of the country’s largest industries: housing and
autos.
Premier Wen Jiabao has
imposed a strict ban on purchases of second and subsequent homes, in
the hope that discouraging real estate speculation will improve the
affordability of homes. The ban has resulted in a steep decline in
residential real estate prices, a sharp fall in housing construction
and widespread job losses among construction workers.
At the same time, the
municipal government in Guangzhou, one of China’s largest cities,
has sharply reduced this summer the number of new car registrations
it allows so as to reduce traffic congestion and air pollution.
Municipal officials
from all over China have been flocking to Guangzhou to ask for
details. Xi’an, the metropolis of northwestern China, has already
announced this month that it will limit car registrations, although
it has not settled on the details.
The Chinese auto
industry has grown tenfold in the last decade to become the world’s
largest, looking like a formidable challenger to Detroit. But now,
the Chinese industry is starting to look more like Detroit in its
dark days in the 1980s.
Inventories of unsold
cars are soaring at dealerships across the nation, and the Chinese
industry’s problems show every sign of growing worse, not better.
So many auto factories have opened in China in the last two years
that the industry is operating at only about 65 percent of capacity —
far below the 80 percent usually needed for profitability.
Yet so many new
factories are being built that, according to the Chinese government’s
National Development and Reform Commission, the country’s auto
manufacturing capacity is on track to increase again in the next
three years by an amount equal to all the auto factories in Japan, or
nearly all the auto factories in the United States.
“I worry that we’re
going down the same road the U.S. went down, and it takes quite some
time to fix that,” said Geoff Broderick, the general manager of
Asian operations at J. D. Power & Associates, the global
consulting firm.
Automakers in China
have reported that the number of cars they sold at wholesale to
dealers rose by nearly 600,000 units, or 9 percent, in the first half
of this year compared to the same period last year.
Yet dealerships’
inventories of new cars rose 900,000 units, to 2.2 million, from the
end of December to the end of June. While part of the increase is
seasonal, auto analysts say that the data shows that retail sales are
flat at best and most likely declining — a sharp reversal for an
industry accustomed to double-digit annual growth.
“Inventory levels
for us now are very, very high,” said Huang Yi, the chairman of
Zhongsheng Group, China’s fifth-largest dealership chain. “If I
hadn’t done special offers in the first half of this year, my
inventory would be even higher.”
Manufacturers have
largely refused to cut production, and are putting heavy pressure on
dealers to accept delivery of cars under their franchise agreements
even though many dealers are struggling to find places to park them
or ways to finance their swelling inventories. This prompted the
government-controlled China Automobile Dealers Association to issue a
rare appeal to automakers earlier this month.
“We call on
manufacturers to be highly concerned about dealer inventories, and to
take timely and effective measures to actively digest inventory,
especially taking into account the financial strain on distributors,
as manufacturers have to provide the necessary financing support to
help dealers ride out the storm,” the association said.
Officially, though,
most of the inventory problems are a nonissue for the government.
The Public Security
Bureau, for example, has halted the release of data about slumping
car registrations. Data on the steel sector has been repeatedly
revised this year after a new method showed a steeper downturn than
the government had acknowledged. And while rows of empty apartment
buildings line highways outside major cities all over China, the
government has not released information about the number of empty
apartments since 2008.
Yet businesspeople in
a wide range of industries have little doubt that the Chinese economy
is in trouble.
“Inventory used to
flow in and out,” said Mr. Wu, the faucet and sink sales manager.
“Now, it just sits there, and there’s more of it.”
